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Hello sir, I have been finding tough to understand this question, and I hope u would clear this out? Goodness there is going to be alot of typing ?
At 31 December 2003, Tony had accrued $240 in respect of light and heat for the quarter ending 31 December 2003. In January 2004 he discovered that he had “under-accrued” by $ 10.
The bills for the next four quarters were as follows (q.e. =quarter ended )
Amount………. Relating to……………………. Data paid
$260………….. q.e. 31 March 2004 ………. 15 April 2004
$220…………. q.e. 30 June 2004 ……… 17 July 2004
$210 …………. q.e. 30 September 2004 …………… 14 October 2004
$230…………. q.e. 31 December 2004 …………… 19 January 2005Tony always accrues for expenses based on the last bill.
What is the charge to the statement of the profit and loss in the respect of light and heat for the 15-month period ended 31 March 2005?
The total cash paid during the 15 month period = 260 + 220 + 210 + 230 = 920.
To get the expense for the period you subtract the opening accrual of 240, and add the closing accrual. The accrual at the end of the year is for the 3 months to 31 March and will be 230 (because the question says that it is based on the last bill).
As I explain in the free lectures on accruals and prepayments, we can’t now go back and change the previous period (where we should have accrued more) and therefore it is effectively adjusted for in this period as per my answer before.
Oops – I forgot that it was a 15 months period.
The 920 that I wrote before is the total paid for the 12 months to 31 March 2005.
In addition they had paid 250 in January 2004 (the amount accrued plus the 10 that was under-accrued). Therefore the total actually paid was 1170.The rest is as I wrote before – subtract the opening accrual of 240 and add the closing accrual of 230.
It means that they did not accrue enough – the actual cost was higher than the amount that they had estimated.
Sir, I am stuck on the very first question.
On January 1, 2009 the company received a rent from tenant $9600 covering the six months to 31 December 2008
I want to ask how this $9600 are an asset. Shouldn’t it be a liability.
Moreover, is insurance an asset for a company?They are receiving rent and as at the 31 December 2008 the company was owed rent of 9600.
Since they are owed money it is an asset.Insurance is an expense, but if they have prepaid insurance at the end of the year then the amount of the prepayment is an asset.
Have you watched our free lectures on accruals and prepayments?
(Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well)
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